Social Capital and Group Homogeneity: Joint-Liability Lending in Thailand

Thursday, 14 July 2016: 11:00
Location: Hörsaal III (Neues Institutsgebäude (NIG))
Oral Presentation
Mariana GATZEVA, Kwantlen Polytechnic University, Canada
Microcredit programs provide small loans to poor people organized in jointly liable groups. Given the lack of collateral, the group lending literature emphasizes the social capital of borrowers, specifically their ties to and information about one another through which they can monitor, sanction, self-select, and provide help and cooperation to fellow members. Group composition in terms of similarity of social characteristics of members and its effect on repayment is significantly less studied. Applying social networks theory to microlending, this paper explores the interplay between group homogeneity and social capital, and their separate and combined effects on repayment. I argue that group homogeneity is a key factor in analyzing group lending and the success of microfinance programs worldwide. Using data on borrowing groups of a microlender in Thailand, I assess the extent to which group homogeneity accounts for differences in the amount of social capital available to groups and in the risk of formal penalties for late repayment or default on a loan. I find that socially homogeneous groups tend to have less social capital in the form of monitoring, sanctions, and cooperation but such groups also suffer fewer problems with repayment. Contrary to most prior research, my results show that social capital can affect repayment adversely.